Monday, January 18, 2016

SUPPLY CHAIN FINANCE

Supply Chain Finance is the New Plastics!

Its-a-Wonderful-life-foto
If you ever watched Its a Wonderful Life, and who hasnt, great story, you may recall when George Bailey gets asked to invest in plastics by Mary’s boyfriend.  George, played by Jimmy Stewart, responds, "Now, you listen to me! I don't want any plastics, and I don't want any ground floors, and I don't want to get married - ever - to anyone! You understand that? I want to do what I want to do. And you're... and you're.."
That scene reminds me of today’s world and supply chain finance. A day does not go by when some new finance solution is going to solve some pain for a poor old business that is credit starved.  Yes, Supply Chain Finance is the new plastics.
Trade Credit and liquidity is especially relevant given both the availability and cost of capital within a Buyer-Supplier supply chain is very challenged, especially for non rated and non investment grade companies. Companies need to better understand the issues around supply chain finance as the need to inject capital or increase capital into their supply chain or dealer and distributor networks continues to evolve, especially as the corporate business model becomes more globally distributed.
Vendors, banks, specialty finance companies and other providers (ie, credit insurers) are developing new models for business finance. New technologies and financing approaches are emerging. Technology can aid in aggregating, packaging, and utilizing information generated during supply chain activities to manage risk.   For example, three areas are worth watching:
  • The first are Supplier Networks which is bigger than just einvoicing
  • The seond, predicative analytics tied to payment or order history, is a big area for non approved invoices tied to new data access, algorithms, risk models, etc.
  • Ledger extraction technologies tied to new underwriting methods, both for small business invoice and factoring solutions as well as large business securitization financings.
We believe it is important for both banks and companies to understand each other’s business at a higher level of detail. As supply chain finance enters a new era of maturity and as new alternative business to business finance solutions emerge, it is more important than ever to understand just where vendors sit in the food chain.
I will be producing the 2016 State of Supply Chain Finance Industry guide to provide an independent source for anyone determining how their company should proceed with supply chain finance and working capital solutions, both for their supplier ecosystem as well as their customer relationships. Whether you are simply assessing what is available on the market today or just trying to understand what this space is about, this guide will help keep you informed about developments in this important sector.

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